Motilal Oswal Sees Potential Downside Of Nearly19% From This Large Cap Gas Stock

Motilal Oswal highlights that there is double trouble for Indraprastha Gas Ltd. The brokerage feels that the share price of gas stock will fall by nearly 19% and so has asked investors to sell it.

Indraprastha Gas Ltd is a large cap company established in 1998 to distribute and supply natural gas as cooking and vehicular fuel. The current market capitalisation of the firm is Rs 30,226.03 crore.

Most of the revenue of the company comes from CNG but there seems to be threat of EV on IGL's CNG volumes over FY24-25E was pointed out by the brokerage. "Our calculations revealed that if EVs capture 20% of incremental CNG vehicles, IGL's CNG growth rate may decline to 12%/9% from 14/11% in base case, in FY24/FY25, respectively. Whereas, if EVs capture 30% of incremental CNG vehicles, the growth rate may decline to 10%/8% during FY24/25."

Beides, CNG and domestic PNG volumes for listed CGDs (IGL, MAHGL, GUJGA & ATGL) has reported a 7% CAGR over the past four years, while gas production from nominated fields declined at 3% CAGR during the same period.

Even the supply-demand imbalance would persis, thereby increasing the proportion of expensive non-APM volumes in sourcing mix for CGDs. This would further lead to structural margin challenges going forward. Even the management stated that almost half of the incremental volume for next two years would likely come from industrial segment, which would not only pressure IGL's EBITDA/scm but also make it more volatile.

Therefore Motilal Oswal suggested that, its better to sell this large cap stock. "We maintain our sell rating on the stock valuing it at 14x Dec'24E EPS and adding the value of investments at 25% holding company discount to arrive at our TP of Rs 340. Stricter mandate on adoption of natural gas by industries/ vehicles remains the key risk to our call."

The current market price of the stock is Rs 431.80 per share, which is up by 1.02% over previous day's closing. Its 52- week high is at Rs 455 per share, and 52-week low is at Rs 335.10 per share.
In one year it has gone up by 10.1% and in three years it has grown by 40%.

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